Original title: "What impact will the so-called Solana's most important economic adjustment SIMD-0228 bring?"
Source: SolEasy Labs
Recently, a governance proposal SIMD-0228 from the Solana community has become a focus of attention. Once this proposal was put forward, it sparked numerous discussions within the community, with some expressing support and others expressing concerns. So what is it exactly? In simple terms, SIMD-0228 attempts to upgrade Solana's SOL issuance mechanism from the original fixed inflation to a flexible dynamic adjustment, anchoring it to the staking participation rate and reshaping the network's economic model. This not only concerns the value of SOL, but also has the potential to press an important button for the future development of the Solana ecosystem.
SIMD-0228 Why is it getting attention?
SIMD-0228 was jointly proposed by three heavyweights in the Solana ecosystem in January this year, including Tushar Jain and Vishal Kankani, co-founders of Multicoin Capital, one of Solana's earliest and most important supporters. In addition, Max Resnick, Chief Economist of Anza, the core development team of Solana, also expressed strong support.
Currently, Solana's inflation mechanism follows a fixed schedule, with the annual inflation rate decreasing from the initial 8% to approximately 4.669% now, aiming to stabilize long-term around 1.5%. However, this fixed model lacks flexibility and cannot be adjusted flexibly according to the actual needs of the network or the staking participation rate.
Over the past six months, Solana's on-chain activities have been booming, generating over $1.5 billion in REV (Network Revenue = Fees + Tips), demonstrating its strong network usage demand. At the same time, Solana's staking ratio has reached a historical high of 65.7%, creating favorable conditions for reducing inflation. Therefore, proposers believe that the inflation strategy should be optimized to no longer blindly issue excess SOL, which can also promote a healthier development of the network.
The core of SIMD-0228 lies in the introduction of the 'intelligent inflation' mechanism, which dynamically adjusts the issuance of SOL based on the staking ratio. The specific objectives include:
· Dynamic Incentive Staking: When the staking ratio decreases, the system will automatically increase the issuance of SOL to incentivize more users to participate in staking and ensure the security of the network.
· Minimum Necessary Inflation (MNA): The system will minimize unnecessary SOL issuance as much as possible, only issuing the minimum amount of tokens required to maintain network security, to avoid market selling pressure.
· Network security: Ensure the security of the network while releasing more capital into the DeFi ecosystem to promote the healthy development of the ecosystem.
The proposer believes that this adjustment can help Solana break away from the old path of 'inflation' and move towards a more sustainable development trajectory. It sounds perfect, but what will happen after implementation? What kind of impact will it have?
SIMD-0228 What impacts might it bring?
If SIMD-0228 passes smoothly, Solana's economic model will undergo a major transformation, with implications for the entire ecosystem.
1. The impact on Solana network
After the proposal is passed, based on the current staking rate of 65%, the inflation rate may plummet from the current 4.5% to 0.87%, and the staking rewards will be significantly reduced. This means that validators' income will rely more on MEV (Miner Extractable Value) rather than inflation rewards. For ordinary holders, SOL dilution decreases, selling pressure eases, and there is greater room for price increases.
But for validators, especially small validators, low returns may make it difficult for them to maintain operation. Former Grayscale research director David Grider created a model to predict that Solana may lose 50 to 250 validators as a result, leading to an increase in network centralization risk, so this is actually a game of 'security and efficiency'.
2. Impact on the ecosystem builders
Reducing staking rewards will leave more SOL with nowhere to go, ultimately flowing into the DeFi ecosystem, increasing liquidity. Ian Unsworth stated that this will drive up the adoption rate of the Liquid Staking Token (LST), creating positive momentum for existing DeFi protocols with liquidity (such as JitoSOL), and also benefiting VRTs (such as Renzo, Fragmetric, and Kairos) built on its staking platform.
Additionally, this will also result in profits being directly linked to network usage, with most rewards coming from priority fees and Jito fees. Verification fees may generate a potential flywheel effect, as wealth effect injection, high chain usage = higher profits = higher chain usage. At the same time, low base profits will push developers to build 'profit-enhancing' products, ultimately leading to an explosion of staking derivative products.
Editor's Note: Jito Validator Tips, or Jito Validator Tips, is a feature introduced by Jito Labs, the MEV infrastructure protocol in the Solana ecosystem. It aims to optimize the profit distribution mechanism of validators and directly allocate some of the MEV revenue (such as profits generated from arbitrage and liquidation) to validators in the form of "tips".
However, everything has two sides. Reducing the issuance of new tokens may limit the funds and liquidity of ecological projects and developers, potentially slowing down innovation and growth, which may affect the overall vitality of the ecosystem. Moreover, due to the reduction of network validators, if network security is compromised, it may directly affect the development of ecological projects and reduce user confidence.
3. Impact on holders
For SOL holders, 'smart inflation' greatly enhances the controllability of Solana's inflation, making it particularly attractive to institutional capital. More funds may flow into DeFi protocols in pursuit of high returns, and the long-term price performance of SOL is worth looking forward to. The model can also maintain a competitive return rate based on the staking participation rate, enhancing asset value. However, for large holders, the reduction in staking rewards may prompt them to rethink: should they continue staking, or switch to other income channels? This is not just a technical adjustment, but also a reconstruction of investment logic.
SIMD-0228 Game of all parties
The lively discussion of the SIMD-0228 proposal reflects the complexity of the ecosystem, with major investment institutions mainly in support, a divided group of validators, and a complex situation with developers and ecosystem builders taking varied stances.
The two proposers of SIMD-0228, Tushar Jain and Vishal Kankani, both believe that SMID-0228 will release more SOL into the DeFi ecosystem, providing more opportunities to develop and promote new DeFi products and services, increase liquidity, and user participation.
· Solana's co-founder Anatoly Yakovenko has also expressed support for the proposal, believing that a pragmatic release gives Solana the opportunity to "correct our young people's mistakes".
· Ben Hawkins, the staking director of the Solana Foundation, supports issuing dynamic $SOL to reduce inflation.
Max Kaplan of Sol Strategies proposed the concept of "prefer to be roughly correct than precisely wrong", emphasizing the flexibility of market-driven mechanisms.
· Kamino co-founder Marius pointed out that "staking encourages hoarding and reduces financial activity," supporting reducing inflation to enhance liquidity.
Therefore, for large investment institutions, the SIMD-0228 proposal can shape the narrative of a 'market-driven efficient network,' attracting more institutional investments, while the reduction in inflation rate helps reduce token dilution and maintain its holding value.
Despite the optimism of experts, members of the Solana community have expressed their concerns. For example, validator Xen stated that if rewards end up favoring those who hold more SOL, smaller validators may struggle to make money, leading to an 'inflationary spiral'.
Xen's concerns are not unfounded. In Q4 2024, Solana's MEV revenue reached an amazing $4.3 billion, more than 10 times that of Q1. Therefore, even with a significant reduction in the inflation rate, large professional validators can offset the decrease in revenue through MEV and transaction fees to maintain profitability.
For small and medium-sized validators, there are still 250 small validators that are not profitable and can only stay online through the Solana Foundation's delegation program. A model established by former Grayscale researcher David Grider indicates that after the SMID-0228 proposal is approved, Solana may lose an additional 50 to 250 validators under different revision scenarios.
Community member Leapfrog admitted on the Solana developer forum that the proposal 'will have a catastrophic impact on Solana.' He believes that if inflation rises when investment confidence is low, investors withdraw and sell, it will exacerbate panic. Regardless of the potential returns, volatile assets are not suitable for long-term large investors.
Multicoin Capital's managing partner stated that the consensus is currently that the inflation rate is too high, and action should be taken quickly. He is not worried about consensus security, but acknowledges that the profitability of validators may be affected. It is expected that some validators may exit the network, and may even trigger a 'zero commission competition', further worsening their economic situation.
He emphasized that excessive caution can lead to 'analysis paralysis' and hinder the development of Solana, so swift progress should be maintained to avoid a situation similar to that of Ethereum. The proposed reform essentially represents a re-balancing of power between large token holders, validators, and ecosystem builders, making this vote one of the most important decisions for Solana.
SIMD-0228 Can it be further optimized?
SIMD-0228 has undoubtedly sparked discussions across the entire Solana ecosystem. If it can be approved, it will be a popular decision. Short-term consensus has been reached, but new issues may arise after running for a while, leading to new adjustment proposals.
If the vote cannot be passed, according to the current popularity of the proposal, I'm afraid that new proposals will continue to be put forward to modify the economic model of Solana, because the main contradiction at present is the mismatch between Solana's development needs and its economic model. As long as this contradiction exists, there will be enough impetus in the ecosystem to push for new proposals.
Through the perspectives of all parties on SIMD-0228, we can also perceive that most people are not discussing whether this contradiction itself exists, but are discussing the specific adjustment methods in the SIMD-0228 proposal. Therefore, new proposals are likely to emerge in large numbers.
So, where can we start if we want to propose new solutions to resolve the current contradictions?
First, make some modifications to the parameters mentioned in SIMD-0228. Some of the opposition to SIMD-0228 comes from its overly radical changes, which will have a greater impact on the ecosystem if the changes are too drastic.
If some of the parameters are adjusted to slow down the overall changes, such as changing the lowest inflation rate in SIMD-0228 from 0% to around 2%, reducing the decrease in validator income, ensuring their survival, and making the adjustment of the staking rate less drastic, perhaps a more moderate version of SIMD-0228 will be proposed.
Secondly, redesign the scheme of dynamically adjusting the inflation rate. For example, Polkadot also has a mechanism to dynamically adjust Staking rewards. It has designed an optimal Staking ratio. When the actual Staking ratio deviates from the optimal Staking ratio, it will prevent stakers from receiving all inflation rewards, as a portion will flow into the treasury. This mechanism encourages people to align the Staking ratio closer to the optimal Staking ratio, which is the most cost-effective for Staking participants, thereby regulating the overall Staking ratio of the network.
However, Polkadot's mechanism will involve channeling some inflation funds into the treasury, which will add additional complexity to governance. But it is undeniable that there are indeed some mechanisms that can dynamically adjust Staking rewards, thus influencing the overall ecosystem development, a point that Solana can learn from.
As for the part of the inflation funds that Polkadot flows into the treasury, combined with Solana's design without a treasury, it can be considered to burn it, thereby forming a relatively ideal proportion of Solana's staking rate (such as 33%). At the same time, when the staking ratio is not optimal, Solana's total inflation rate will decrease due to additional burning, and staking rewards will also decrease.
The above method is still a scheme that dynamically adjusts the inflation rate itself, and the same effect can be achieved by dynamically adjusting other parameters.
For example, the initial inflation rate can be directly adjusted to a fixed value of 3%, but the current fee burning ratio can be dynamically adjusted. The current fee is 50% burned and 50% given to validators, we can dynamically adjust the proportion of this 50% to increase burning when needed or reduce burning when necessary, ensuring that Staking rewards will not be too high to affect ecological development, and leveraging the power of the ecosystem to reduce inflation.
Of course, if you think that reducing the current inflation rate of about 4.5% to 3% directly is too fast, you can also consider setting it to decrease by 0.5% every six months, taking a year and a half to reach the endpoint of 3%, which can slow down the impact of this adjustment on the ecosystem.
The above is just a divergent thinking for SIMD-0228, but it is also enough to see that there are many ways to adjust the economic model of Solana. As one of the most successful public chains at present, the adjustment of its economic model is an important experiment in the blockchain industry.
Currently, SIMD-0228 is under voting, with the number of votes exceeding 33% reaching the statutory number. Currently, the approval rate has exceeded 70%, and the voting will continue until Epoch 755. If successful, it will provide a reference paradigm of 'inflation dynamism' for other public chains. Even if unsuccessful, this governance dispute has profoundly changed the narrative of Web3: The future of blockchain economy lies in the delicate balance between code rules and human incentive, and Solana is undoubtedly leading the industry's development.
The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
What impact will the so-called SIMD-0228, the most important economic adjustment of Solana, bring?
Recently, a governance proposal SIMD-0228 from the Solana community has become a focus of attention. Once this proposal was put forward, it sparked numerous discussions within the community, with some expressing support and others expressing concerns. So what is it exactly? In simple terms, SIMD-0228 attempts to upgrade Solana's SOL issuance mechanism from the original fixed inflation to a flexible dynamic adjustment, anchoring it to the staking participation rate and reshaping the network's economic model. This not only concerns the value of SOL, but also has the potential to press an important button for the future development of the Solana ecosystem.
SIMD-0228 Why is it getting attention?
SIMD-0228 was jointly proposed by three heavyweights in the Solana ecosystem in January this year, including Tushar Jain and Vishal Kankani, co-founders of Multicoin Capital, one of Solana's earliest and most important supporters. In addition, Max Resnick, Chief Economist of Anza, the core development team of Solana, also expressed strong support.
Currently, Solana's inflation mechanism follows a fixed schedule, with the annual inflation rate decreasing from the initial 8% to approximately 4.669% now, aiming to stabilize long-term around 1.5%. However, this fixed model lacks flexibility and cannot be adjusted flexibly according to the actual needs of the network or the staking participation rate.
Over the past six months, Solana's on-chain activities have been booming, generating over $1.5 billion in REV (Network Revenue = Fees + Tips), demonstrating its strong network usage demand. At the same time, Solana's staking ratio has reached a historical high of 65.7%, creating favorable conditions for reducing inflation. Therefore, proposers believe that the inflation strategy should be optimized to no longer blindly issue excess SOL, which can also promote a healthier development of the network.
The core of SIMD-0228 lies in the introduction of the 'intelligent inflation' mechanism, which dynamically adjusts the issuance of SOL based on the staking ratio. The specific objectives include:
· Dynamic Incentive Staking: When the staking ratio decreases, the system will automatically increase the issuance of SOL to incentivize more users to participate in staking and ensure the security of the network.
· Minimum Necessary Inflation (MNA): The system will minimize unnecessary SOL issuance as much as possible, only issuing the minimum amount of tokens required to maintain network security, to avoid market selling pressure.
· Network security: Ensure the security of the network while releasing more capital into the DeFi ecosystem to promote the healthy development of the ecosystem.
The proposer believes that this adjustment can help Solana break away from the old path of 'inflation' and move towards a more sustainable development trajectory. It sounds perfect, but what will happen after implementation? What kind of impact will it have?
SIMD-0228 What impacts might it bring?
If SIMD-0228 passes smoothly, Solana's economic model will undergo a major transformation, with implications for the entire ecosystem.
1. The impact on Solana network
After the proposal is passed, based on the current staking rate of 65%, the inflation rate may plummet from the current 4.5% to 0.87%, and the staking rewards will be significantly reduced. This means that validators' income will rely more on MEV (Miner Extractable Value) rather than inflation rewards. For ordinary holders, SOL dilution decreases, selling pressure eases, and there is greater room for price increases.
But for validators, especially small validators, low returns may make it difficult for them to maintain operation. Former Grayscale research director David Grider created a model to predict that Solana may lose 50 to 250 validators as a result, leading to an increase in network centralization risk, so this is actually a game of 'security and efficiency'.
2. Impact on the ecosystem builders
Reducing staking rewards will leave more SOL with nowhere to go, ultimately flowing into the DeFi ecosystem, increasing liquidity. Ian Unsworth stated that this will drive up the adoption rate of the Liquid Staking Token (LST), creating positive momentum for existing DeFi protocols with liquidity (such as JitoSOL), and also benefiting VRTs (such as Renzo, Fragmetric, and Kairos) built on its staking platform.
Additionally, this will also result in profits being directly linked to network usage, with most rewards coming from priority fees and Jito fees. Verification fees may generate a potential flywheel effect, as wealth effect injection, high chain usage = higher profits = higher chain usage. At the same time, low base profits will push developers to build 'profit-enhancing' products, ultimately leading to an explosion of staking derivative products.
Editor's Note: Jito Validator Tips, or Jito Validator Tips, is a feature introduced by Jito Labs, the MEV infrastructure protocol in the Solana ecosystem. It aims to optimize the profit distribution mechanism of validators and directly allocate some of the MEV revenue (such as profits generated from arbitrage and liquidation) to validators in the form of "tips".
However, everything has two sides. Reducing the issuance of new tokens may limit the funds and liquidity of ecological projects and developers, potentially slowing down innovation and growth, which may affect the overall vitality of the ecosystem. Moreover, due to the reduction of network validators, if network security is compromised, it may directly affect the development of ecological projects and reduce user confidence.
3. Impact on holders
For SOL holders, 'smart inflation' greatly enhances the controllability of Solana's inflation, making it particularly attractive to institutional capital. More funds may flow into DeFi protocols in pursuit of high returns, and the long-term price performance of SOL is worth looking forward to. The model can also maintain a competitive return rate based on the staking participation rate, enhancing asset value. However, for large holders, the reduction in staking rewards may prompt them to rethink: should they continue staking, or switch to other income channels? This is not just a technical adjustment, but also a reconstruction of investment logic.
SIMD-0228 Game of all parties
The lively discussion of the SIMD-0228 proposal reflects the complexity of the ecosystem, with major investment institutions mainly in support, a divided group of validators, and a complex situation with developers and ecosystem builders taking varied stances.
The two proposers of SIMD-0228, Tushar Jain and Vishal Kankani, both believe that SMID-0228 will release more SOL into the DeFi ecosystem, providing more opportunities to develop and promote new DeFi products and services, increase liquidity, and user participation.
· Solana's co-founder Anatoly Yakovenko has also expressed support for the proposal, believing that a pragmatic release gives Solana the opportunity to "correct our young people's mistakes".
· Ben Hawkins, the staking director of the Solana Foundation, supports issuing dynamic $SOL to reduce inflation.
Max Kaplan of Sol Strategies proposed the concept of "prefer to be roughly correct than precisely wrong", emphasizing the flexibility of market-driven mechanisms.
· Kamino co-founder Marius pointed out that "staking encourages hoarding and reduces financial activity," supporting reducing inflation to enhance liquidity.
Therefore, for large investment institutions, the SIMD-0228 proposal can shape the narrative of a 'market-driven efficient network,' attracting more institutional investments, while the reduction in inflation rate helps reduce token dilution and maintain its holding value.
Despite the optimism of experts, members of the Solana community have expressed their concerns. For example, validator Xen stated that if rewards end up favoring those who hold more SOL, smaller validators may struggle to make money, leading to an 'inflationary spiral'.
Xen's concerns are not unfounded. In Q4 2024, Solana's MEV revenue reached an amazing $4.3 billion, more than 10 times that of Q1. Therefore, even with a significant reduction in the inflation rate, large professional validators can offset the decrease in revenue through MEV and transaction fees to maintain profitability.
For small and medium-sized validators, there are still 250 small validators that are not profitable and can only stay online through the Solana Foundation's delegation program. A model established by former Grayscale researcher David Grider indicates that after the SMID-0228 proposal is approved, Solana may lose an additional 50 to 250 validators under different revision scenarios.
Community member Leapfrog admitted on the Solana developer forum that the proposal 'will have a catastrophic impact on Solana.' He believes that if inflation rises when investment confidence is low, investors withdraw and sell, it will exacerbate panic. Regardless of the potential returns, volatile assets are not suitable for long-term large investors.
Multicoin Capital's managing partner stated that the consensus is currently that the inflation rate is too high, and action should be taken quickly. He is not worried about consensus security, but acknowledges that the profitability of validators may be affected. It is expected that some validators may exit the network, and may even trigger a 'zero commission competition', further worsening their economic situation.
He emphasized that excessive caution can lead to 'analysis paralysis' and hinder the development of Solana, so swift progress should be maintained to avoid a situation similar to that of Ethereum. The proposed reform essentially represents a re-balancing of power between large token holders, validators, and ecosystem builders, making this vote one of the most important decisions for Solana.
SIMD-0228 Can it be further optimized?
SIMD-0228 has undoubtedly sparked discussions across the entire Solana ecosystem. If it can be approved, it will be a popular decision. Short-term consensus has been reached, but new issues may arise after running for a while, leading to new adjustment proposals.
If the vote cannot be passed, according to the current popularity of the proposal, I'm afraid that new proposals will continue to be put forward to modify the economic model of Solana, because the main contradiction at present is the mismatch between Solana's development needs and its economic model. As long as this contradiction exists, there will be enough impetus in the ecosystem to push for new proposals.
Through the perspectives of all parties on SIMD-0228, we can also perceive that most people are not discussing whether this contradiction itself exists, but are discussing the specific adjustment methods in the SIMD-0228 proposal. Therefore, new proposals are likely to emerge in large numbers.
So, where can we start if we want to propose new solutions to resolve the current contradictions?
First, make some modifications to the parameters mentioned in SIMD-0228. Some of the opposition to SIMD-0228 comes from its overly radical changes, which will have a greater impact on the ecosystem if the changes are too drastic.
If some of the parameters are adjusted to slow down the overall changes, such as changing the lowest inflation rate in SIMD-0228 from 0% to around 2%, reducing the decrease in validator income, ensuring their survival, and making the adjustment of the staking rate less drastic, perhaps a more moderate version of SIMD-0228 will be proposed.
Secondly, redesign the scheme of dynamically adjusting the inflation rate. For example, Polkadot also has a mechanism to dynamically adjust Staking rewards. It has designed an optimal Staking ratio. When the actual Staking ratio deviates from the optimal Staking ratio, it will prevent stakers from receiving all inflation rewards, as a portion will flow into the treasury. This mechanism encourages people to align the Staking ratio closer to the optimal Staking ratio, which is the most cost-effective for Staking participants, thereby regulating the overall Staking ratio of the network.
However, Polkadot's mechanism will involve channeling some inflation funds into the treasury, which will add additional complexity to governance. But it is undeniable that there are indeed some mechanisms that can dynamically adjust Staking rewards, thus influencing the overall ecosystem development, a point that Solana can learn from.
As for the part of the inflation funds that Polkadot flows into the treasury, combined with Solana's design without a treasury, it can be considered to burn it, thereby forming a relatively ideal proportion of Solana's staking rate (such as 33%). At the same time, when the staking ratio is not optimal, Solana's total inflation rate will decrease due to additional burning, and staking rewards will also decrease.
The above method is still a scheme that dynamically adjusts the inflation rate itself, and the same effect can be achieved by dynamically adjusting other parameters.
For example, the initial inflation rate can be directly adjusted to a fixed value of 3%, but the current fee burning ratio can be dynamically adjusted. The current fee is 50% burned and 50% given to validators, we can dynamically adjust the proportion of this 50% to increase burning when needed or reduce burning when necessary, ensuring that Staking rewards will not be too high to affect ecological development, and leveraging the power of the ecosystem to reduce inflation.
Of course, if you think that reducing the current inflation rate of about 4.5% to 3% directly is too fast, you can also consider setting it to decrease by 0.5% every six months, taking a year and a half to reach the endpoint of 3%, which can slow down the impact of this adjustment on the ecosystem.
The above is just a divergent thinking for SIMD-0228, but it is also enough to see that there are many ways to adjust the economic model of Solana. As one of the most successful public chains at present, the adjustment of its economic model is an important experiment in the blockchain industry.
Currently, SIMD-0228 is under voting, with the number of votes exceeding 33% reaching the statutory number. Currently, the approval rate has exceeded 70%, and the voting will continue until Epoch 755. If successful, it will provide a reference paradigm of 'inflation dynamism' for other public chains. Even if unsuccessful, this governance dispute has profoundly changed the narrative of Web3: The future of blockchain economy lies in the delicate balance between code rules and human incentive, and Solana is undoubtedly leading the industry's development.
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